The Mortgage Bankers Association (MBA) has demonstrated again that the
public's perception of the real estate market depends on which side of the
closing table they plan to sit.
A study entitled "The Great Recession and Attitudes Toward Homebuying" sponsored
by MBA's Research Institute for Housing America (RIHA) concluded that prospective
homebuyers believe now is a good time to buy, given today's low home prices and
low mortgage interest rates, but potential sellers are nearly unanimous in
reporting that it is not a good time to sell a home, citing difficulty in
finding buyers at desired sales prices.
The study was conducted by Professor Gary V. Engelhardt of Syracuse
University utilizing 30 years of data from the University of Michigan's Survey
of consumer attitudes toward homeownership before, during, and after the recent
recession. Key findings from the study
include:
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Despite the current situation with high unemployment
and slow economic growth almost 80 percent of American households believe that
now is a good time to buy a home.
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The current recession is notable for the deeply
negative sell-side of the market where positive sentiment is at an historic low. This is strongly related to difficulty in
finding buyers at desired sales prices and to the shadow inventory of
delinquent mortgages that may become foreclosed properties.
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Over the last two decades, the value of mortgage
purchase originations has tracked home-selling sentiment more strongly than
home-buying sentiment.
-
The current positive home-buying attitudes and
negative seller-sentiments are forecast to remain fairly constant over the next
five quarters. This suggests that
selling sentiment and, hence, market activity, will remain sluggish in the near
term.
-
Positive sentiment toward homebuying is
particularly strong among young, education, white and Hispanic households.
Engelhardt said the pattern of home-buying sentiment during the current
recession looks very similar to that of past recessions. Homebuyer sentiment
falls as the unemployment rate increases, and improves as job growth returns
and housing becomes more affordable. "What
distinguishes the current recession, though, is the dramatic decline in
home-selling sentiment. From 1992 through 2005, positive home-selling sentiment
fluctuated between 40 and 60 percent. Since 2005, sentiment has dropped
precipitously, to around 7 percent currently, even while home-buying sentiment
remains high."
He said that potential sellers have not adjusted their price expectations
fast enough to bring buyer and seller expectations in line with each other as
market values have fallen. "There
are a number of likely reasons for this," he said. "First, seller-expected prices may be tied to
key past market values, such as the purchase price of the property, or what a
comparable property may have sold for in the recent past. Second, underwater
homeowners cannot adjust their minimum sales prices much below the outstanding
mortgage balance, because they would need to bring cash to the table at sale.
And finally, with large declines in market values, sellers now hold a highly
leveraged option that pays off with any future increase in prices.
"I expect that over the near term, positive home-buying sentiment will
remain at levels typical of the last 30 years. In contrast, positive
home-selling sentiment is expected to remain at historic-low levels. This
suggests that market activity will likely remain sluggish in the near term,
consistent with MBA's forecast," said Engelhardt.
The full report can be found here.